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Dear
Colleagues:

For
the sixth consecutive year Hearst achieved record profits, this time on
relatively modest revenue growth to $10.8 billion. Our 30 Hearst Television
stations, aided by a strong performance in political advertising thanks to our
best-in-class political coverage, and Hearst Health, our five healthcare data
and software platform companies, led the way with outstanding revenue and
profit growth.

Digital
revenue and audience growth were quite strong as across the company our digital
innovation efforts bore fruit. Cosmopolitan,
for example, became one of the most popular sites on Snapchat's Discover
platform and our newspapers saw a big leap in digital subscriptions. We also
harnessed the power of digital technology to enhance our products and services,
making them smarter, faster, more efficient and secure, and we worked with
Amazon, Microsoft and Oracle to put more of our processes into cloud
environments that vastly improve our ability to harness and analyze data and
begin applying machine learning techniques.

We
had a very active year on the acquisition front, adding to our company new
businesses that are growing both revenue and profit at an impressive pace. By
far the largest of these companies is CAMP, a fabulous corporate aircraft
maintenance and safety data and software company that has been run quite
skillfully the past 15 years by Chief Executive Ken Gray and President Vibby
Gottemukkala. Based just outside of Manchester, N.H., CAMP works with the
manufacturers of corporate jets, jet engines and helicopters, and government
regulators around the world to make sure CAMP’s clients, corporate jet owners,
have the latest and best information on safety and maintenance. Each plane’s
maintenance and repair history is also then stored in the CAMP system. CAMP
also owns software businesses that provide the operating system for airplane
maintenance facilities and airplane parts manufacturers. We acquired
substantially all of the equity of CAMP last month, meaning that CAMP’s revenue
and profit will primarily be reflected in our 2017 results.

Last
year’s letter noted with regret that we weren’t able to make a healthcare
acquisition in 2015, but we vowed to keep trying, and in 2016 those efforts
paid off. In June, under the leadership of Hearst Business Media President Rich
Malloch and Hearst Health President Gregory Dorn, M.D., we announced the
acquisition of a majority stake in MedHOK, an excellent software platform
company that helps health plans manage their member patients effectively,
efficiently and in compliance with all Medicare and Medicaid regulations. The
company has grown very fast since its founding in 2010 by CEO Anil Kottoor, our
partner in the business. Our MCG Health business, which had a great year of its
own under CEO Jon Shreve, acquired this month Work Loss Data Institute, a
family-run company that provides crucial healthcare data to the workers’
compensation industry. Co-founders Phil Denniston, Jr., and Patricia Whelan are
retiring with this transaction, to be succeeded by their son, Phil LeFevre.
First Databank, our largest healthcare company, which had a great year under
President Charles Tuchinda, M.D., also agreed to acquire a company in which we
first invested in 2015, Polyglot Systems. Led by CEO Lori McLean, Polyglot
simplifies drug information for patients and then translates that data into 22
languages.

Hearst
Television, under President Jordan Wertlieb, agreed to acquire a majority stake
in Litton Entertainment, by far the leading producer of educational television,
most notably on most of the major broadcast networks on Saturday mornings. Led
by Founder and CEO Dave Morgan and COO Pete Sniderman, Litton’s blocks of
programming on CBS, ABC, NBC and The CW include such shows as Jack Hanna’s Wild Countdown and Lucky Dog. Morgan and his wife, Lissy,
will be our partners in owning the business. We will derive the benefits from
the addition of Litton in 2017’s results and thereafter.

Hearst
Newspapers made acquisitions in 2016 under President Mark Aldam. We acquired The Hour and Wilton Villager to add to our existing newspaper group in Fairfield
County, Conn. We also acquired Houston Community Newspapers to help us better
serve the market around our Houston
Chronicle, and we agreed to acquire The Pioneer Group to enhance our
newspapers business in Michigan.

We’ll
look to be similarly active on the acquisition front in 2017. Our interests
remain focused on new business data or software platform companies in areas
where we think we can add value, on so-called tuck-in acquisitions that add a new
product or service to an existing Hearst business, such as the Work Loss Data
or Polyglot moves, and on businesses that strengthen our existing portfolio,
such as the acquisitions made by our television and newspaper companies. The
strong cash generation of our businesses allows us to make these acquisitions
without at all impairing our rock-solid balance sheet. In fact, we made all of
these acquisitions, totaling well more than $2 billion, with cash on hand.

Our
acquisition program is helping to significantly reshape our business mix. While
we have always been and always will be a media company, the share of our
profits coming from business data and software systems, what we call Business
Media, has grown to an expected 25 percent for 2017. Thus today, we can truly
say that we are an information, entertainment and services company, and that
diversification of businesses and skills is one of our great competitive
advantages.

In
2016 we spent nearly $200 million on capital projects, investments that strengthen
our existing businesses. We also made considerable investments in new product
development at our existing businesses. We began rebuilding Car and Driver’s mobile and web sites to
transform a very good magazine site into a state-of-the-art car buying site
accommodating the amazing amount of change and disruption the auto industry is
experiencing. We significantly expanded the already stellar research
capabilities of Fitch Ratings and considerably bolstered the engineering and
product development staffs within our digital newspapers operation.

We
benefit immensely from our relationships with our partners and work hard to be
a good partner in return. Our great partnership with Disney, under CEO Bob
Iger, in addition to ESPN, includes our 50-50 ownership of the A+E Networks and
our 14 ABC-affiliated television stations.

We
also enjoy a strong partnership with Scripps Networks Interactive, under CEO
Ken Lowe, publishing two of our most successful magazines, Food Network and HGTV. In
addition, we benefit from the wise counsel of our partner in Fitch, French
businessman and Fimalac CEO Marc Ladreit de Lacharrière.

Hearst
Entertainment & Syndication President Neeraj Khemlani last year led the
formation of a new partnership that we are quite excited about with Verizon,
led by Chairman and CEO Lowell McAdam and Marni Walden, EVP and President of
Product Innovation and New Business. Verizon Hearst Media Partners centers
around Complex Networks, a group of fast-growing streaming video networks that
we have both acquired and started, including Complex, Rated Red and
Seriously.TV, all under the leadership of CEO Rich Antoniello. We look forward
to growing Complex and doing more in general with our Verizon colleagues, who
also include Verizon SVP Brian Angiolet and AOL CEO Tim Armstrong.

Verizon
also joined us in investing in streaming video and movie company AwesomenessTV,
led by Brian Robbins and Brett Bouttier. With Comcast’s acquisition of
DreamWorks Animation, we are sorry to part company with our original partner,
Jeffrey Katzenberg, but we welcome Comcast and NBCUniversal, already valued
partners of ours through our ownership of 10 NBC-affiliated television
stations.

Hearst
Magazines partnered with Condé Nast to create PubWorX, a new company allowing
Hearst, Condé Nast and other magazine publishers to share back office services
while still competing fiercely in editorial, ad sales and digital. And our
Newspaper company joined with publishers Gannett, McClatchy and Tronc to start
Nucleus Marketing Solutions, a premium content network of newspaper companies
representing the 30 largest U.S. markets for advertisers.

Worldwide
the media industry is coming to grips with a less favorable supply and demand
equation, as the technology revolution places at consumers’ fingertips more
media than they can possibly consume, and with it, virtually unlimited places
to put advertising. We are tackling this new world head on with some of the
best brands and management teams in the business. Nevertheless, we are pleased
that our multiyear, companywide strategy to grow subscription and fee revenue
in order to better balance our historic dependence on advertising has
positioned us favorably for this changed environment.

ESPN,
under President John Skipper, continues to be the best digital media story in
traditional media and by far the digital leader in sports. Its streaming of
live sports has grown significantly and the company continues to innovate
across the web and mobile. With the start of a new long-term NBA rights
agreement, ESPN has put together an unmatched portfolio of live sports rights
that, while costly to our P&L in the short run, will position it as
television’s most valuable franchise for as far as the eye can see.

A+E
Networks, under CEO Nancy Dubuc and CFO David Granville-Smith, who recently
added the COO title, mitigated a tough revenue environment with excellent cost
controls and yet another strong year of overseas and digital growth under Sean
Cohan, who heads both areas for us.

Cable
networks must work harder to develop more direct relationships with their
viewers, and our networks made important moves on that front. A+E had good
growth with two paid direct-to-consumer products, Lifetime Movie Club, and
HISTORY Vault. And ESPN formed a partnership with Major League Baseball's
powerful streaming video company, BAMTech. The two companies plan to launch an
ESPN branded direct-to-consumer streaming video sports package in 2017 that
will complement ESPN’s core video product. Disney also announced plans to
acquire a one-third interest in BAMTech.

Hearst
Television had a simply great year on all fronts, with our news teams, under
Barb Maushard, winning three national journalism awards including a Peabody for
WTAE-TV in Pittsburgh and Edward R. Murrow Awards for WBAL Radio in Baltimore
and KMBC-TV in Kansas City, Mo. Our nationally distributed public affairs show Matter of Fact with Soledad O’Brien had
a successful launch of season two and continues to set viewership records under
programming chief Emerson Coleman and Executive Producer Rita Aleman. Sales
chief Eric Meyrowitz and his team had perhaps the best sales performance in the
local TV business in 2016.

Hearst
Magazines, under President David Carey and sales and marketing chief Michael
Clinton, overcame a very tough year in print advertising and newsstand sales
worldwide to post a profit gain in 2016. In addition to strong cost management
under CFO Debi Chirichella, the division had one of the best digital
performances in traditional media. Magazines Digital President Troy Young and
deputies Kate Lewis and Todd Haskell delivered outstanding growth in revenue,
audience, and in something all too rare in the digital content space, profits.
A number of other digital companies housed within our magazines division also
had an excellent year: our digital bill payment and services company, KUBRA
under CEO Rick Watkin, our digital automotive ad sales company, Jumpstart under
President Nick Matarazzo, and our digital ad agency, iCrossing, under CEO Nick
Brien. Joanna Coles was named chief content officer at Magazines and Michele
Promaulayko succeeded her as editor-in-chief of Cosmopolitan. HGTV Magazine
had record profits under Editor Sara Peterson and Publisher Dan Fuchs, and
Glenda Bailey marked her 15th year editing Harper’s BAZAAR with distinction.

Our
Newspaper group also overcame a tough print revenue environment and a difficult
economy in our largest market, Houston, to deliver another up profit year. A
standout performance was delivered by the San
Francisco Chronicle under Publisher Jeff Johnson and Editor Audrey Cooper.
The Chronicle not only recorded
another year of profit growth but also saw total revenue increase 4 percent, a
feat not all that common in the newspaper business today. In addition to strong
growth in digital subscriptions and strong revenue and audience growth at
SFGate.com, the Chronicle excelled on
the advertising creative side as well, with the Chronicle’s Story Studio branded content agency under Alison Pfaff
leading a doubling of revenue across our newspaper group from content created
for our advertising partners. Rob Barrett was named president of digital media
for the Newspaper group. At our San
Antonio Express-News, Susan Pape was promoted from COO to publisher.

Fitch
Group, our largest majority owned business led by CEO Paul Taylor, overcame a
sluggish year in global bond issuance to post higher profits in 2016 thanks to
strong cost management under CFO Ted Niedermayer and the quality of our ratings
product, under Ian Linnell. Fitch named Ranjit Tinaikar president of our
non-ratings businesses, called Fitch Information Services. We also launched a
financial services venture capital operation under Shea Wallon.

At
Hearst Health, Homecare Homebase, our software operating system for home
healthcare agencies, had another strong year of expansion under CEO April
Anthony. Kevin Daly moved from MCG to become president of our Zynx Health. And
Hearst Transportation under EVP Tom Cross had another excellent year of growth.

Hearst
Tower had its 10th anniversary, and we celebrated with the launch of
HearstLive, a first floor installation of 9 foot high LED screens 106 feet in
length that showcases content from our 360-plus brands day and night.

At
the Corporate office we named Ken Bronfin and Scott English co-heads of our
primary venture capital entity, Hearst Ventures, and we opened a venture office
in Israel. We launched an incubator for women-led technology startups in 2016,
and under the watchful eye of General Counsel Eve Burton and Chris Wilkes the
program has grown to nine promising startups, all housed in our New York
headquarters. CFO Mitch Scherzer, his deputy for acquisitions, Mark Smadbeck,
Chief Legal Officer James Asher, Eve Burton, Deputy General Counsel Mark
Redman, Business Media EVP Steve Hobbs and Chief Technology Officer Phil Wiser
played a key role in getting our acquisitions across the finish line this year.
Thanks also to Senior Vice Presidents Lincoln Millstein and Deb Shriver, her
Communications department colleagues Paul Luthringer and Judith Bookbinder,
Chief Investment Officer Roger Paschke, Deputy General Counsel Jon Donnellan,
Legal Vice President David Kors, Vice Presidents of Finance Bill Kager, Steve
DeLorenzo and Gabby Munoz, and Treasurer Carlton Charles.

Most
importantly, thanks to all of you, for your tireless efforts on behalf of our
readers and viewers, our partners and clients, our communities and our company.
I join our Chairman, William R. Hearst III, and our Executive Vice Chairman and
my predecessor, Frank A. Bennack, Jr., in wishing you a fabulous 2017.